www.baltimoresun.com/news/maryland/politics/bal-md.deficit19oct19,0,7380584.story

baltimoresun.com

Slots no longer seen as fiscal fix

New budget estimates show gambling revenue won't be enough to close deficit

By Laura Smitherman and Gadi Dechter

October 19, 2008

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Recent economic turmoil has diminished Maryland tax collections so much that legalizing slot-machine gambling would no longer be enough to solve the state's long-term budget problems, according to new fiscal estimates.

A year ago, state officials hailed the closing of the so-called structural budget deficit - a persistent gap between revenue and spending of as much as $1.7 billion - after Gov. Martin O'Malley and the General Assembly approved a package that included tax increases, budget cuts and the slots proposal that goes before voters this November.

Estimates then showed that when slots revenue fully kicked in, the expected $600 million a year in new revenue would be enough to keep the budget balanced for the foreseeable future.

But in a matter of months, the structural deficit has returned, to the tune of more than $800 million annually for at least five more years, even if voters approve slots, according to projections from the nonpartisan Department of Legislative Services.

Income and sales tax revenues are falling below projections this year. Lottery sales are down from last year. In all, Maryland is short hundreds of millions of dollars it wanted for programs.

If slots fail, projected shortfalls will be even bigger.

The anti-slots campaign and Comptroller Peter Franchot, the state's chief tax collector, have seized on the new budgetary reality as a reason for voters to reject slots. They argue that claims from slots backers that the expanding gambling would help solve the structural deficit are meaningless.

"It's not going to help the deficit," Franchot said during a radio interview Friday, repeating an argument he made earlier in the week. "We are going to have $1 billion deficits as far as the eye can see with or without slots."

In an exchange on the topic earlier this week, O'Malley said that slots revenue from 15,000 machines in five locations around the state is not a cure-all, but one step toward bringing revenues and expenses permanently into alignment.

The Democratic governor won approval last week of $300 million in budget cuts to this year's $14 billion operating budget, which state law requires to be balanced. He is expected to trim the budget further in the coming months and perhaps use some surplus rainy-day funds to bridge tough economic times.

"We all agree it would be far, far, far, far worse if slots revenues are not available to us," O'Malley said at a meeting of the Board of Public Works, which also includes Franchot.

The structural budget gap can largely be traced to a 1998 income tax cut and a 2002 decision to increase formula-based education spending.

The new budget forecasts assume recessionary conditions next year and recovery in mid-2010, though not at the same level seen during the housing market bubble, said Warren G. Deschenaux, the legislature's chief budget analyst.

Deschenaux said a number of steps could be taken - besides raising taxes - to reduce the structural deficit, and that the latest forecast doesn't include spending cuts implemented last week.

Budget Secretary T. Eloise Foster has said she plans to ask state agencies to identify an additional 3 percent in cuts and that she would have an eye toward paring their budgets down to "core missions."

But the fate of Maryland's long-term fiscal health lies in large part with the economy.

"The revenue side is a crap shoot, really," Deschenaux said.